Venezuela

1. Venezuela

2. Northern South America Bordering Caribbean Sea and North Atlantic Between Columbia and Guyana ~ twice the size of California Population: 24,287,670 Venezuela

3. History • Original inhabitants: Carib, Arawak, and Chibcha-speaking • In the late 1500’s, the Spanish arrived looking for gold and other riches • Venezuela became a land of plantations worked by slave labor from Africa

4. Independence • The creole population initiated the drive for freedom due to dissatisfaction with local politics • Independence is celebrated on July 5th – based on the initial charge for freedom led by Simón Bolívar • 1821 Simón Bolívar became leader of a Venezuela free of Spanish rule • 1823 the last Spaniard were forced out after their defeat at Maracaibo • May 6, 1830 Venezuela seceded from Gran Colombia

5. Independence & Chaos • Next 100 years – caudillos and rule was held by various dictators • 1958 – first elected government • 1999 – new Constitution and newly elected government • Since 1999: • Natural disasters (floods and mud slides) • Oil strikes

6. Government • Federal Republic • 22 States • 1 Metropolitan District • 11 Federally controlled islands • 72 additional islands in the Caribbean (federal dependencies)

7. Government • Executive power at the state level • Elected to four year terms • Local government • Mayor • Municipal Council • Parishes • Current Chief of State • Hugo Chavez • Initially elected in 1998 • Re-elected to a six year term in July, 2000

8. Government • Chavez Administration • Called for fundamental restructuring • New Constitution • Appointed National Constituent Assembly • Guarantees freedom to create political parties • Legislative power is a unicameral National Assembly • Represented by Deputies from each electoral district • Creole population guaranteed three Deputies • Republican Moral Council – job is to “observe, prevent, investigate and penalize acts against the public ethic and administrative moral and oversee the legality of the use of public fund.” • Provides citizen empowerment • Includes a People’s Defender, Public Prosecutor, and General Accountant

9. Industries: petroleum, iron ore mining, construction materials, food processing, textiles, steel, aluminum, motor vehicle assembly Export commodities: petroleum, bauxite and aluminum, steel, chemicals, agricultural products, basic manufactures Import commodities: raw materials, machinery and equipment, transport equipment, construction materials Statistics

10. Statistics • Life expectancy at birth in 1995 was 72.2 years (69.3 for men and 75.1 for women). • Population growth: 1.52% (2002) • The Venezuelan population is young: • 12.6% are under 4 years of age • 23.6% are between 5 and 14 years • 55.5% are under 25 • 4.1% of the population is 65 or older. • This group is growing faster than that of the general population.

11. Environmental Initiatives • Antarctic Treaty • Biodiversity • Climate Change • Desertification • Endangered Species • Hazardous Wastes • Marine Life Conservation • Nuclear Test Ban • Ozone Layer Protection • Ship Pollution • Tropical Timber 83 • Tropical Timber 94 • Wetlands

12. Environmental Issues • Sewage pollution of Lago de Valencia • Oil and urban pollution of Lago de Maracaibo • Deforestation • Soil degradation • Urban and industrial pollution • Particularly along the Caribbean coast • Rainforest Ecosystem • Threat from irresponsible mining operations

13. Environmental Issues • Venezuela has a relatively good conservation record. • 1976 the first Ministry of the Environment in Latin America was established. • Since then a complex legal framework for environmental management has been established. • Extensive protected area systems • Nearly half of national territory is under some kind of protection.

14. Oil Background • Oil exportation began in the early 1920s • Oil income was not invested wisely, industry was mired in corruption and waste • Venezuela is an OPEC member • Eighth largest oil producer • Oil export is ~ 1/3 of GDP • 80% of export earnings come from oil • 50% of the government’s operating revenue stems from oil

15. Oil Background • Mid-nineties oil price decline led to: • Recession and eventual reorganization of government • Economy is slow to recover because of: • Weak non-oil sector • Capital flight • Safety net created to avoid recurrence: • Macroeconomic Stabilization Investment Fund • Deposits come from petroleum revenue

16. Oil Strike • November 2001 • Chavez enacted a new law that makes the government the majority partner in any new energy venture in Venezuela. • December 2, 2002 • Purpose remove President Hugo Chavez from power. • Chavez in turn is looking to eliminate state contracts with Venezuela’s private sector (composed of opposition members). • Chavez has repeatedly appointed political allies to key positions. • Affect on US • Has imported up to 15% of oil from Venezuela. • Has branded Venezuelan oil supplies as unreliable. • Venezuelan daily oil production has dropped to 440,000 compared to 3 million barrels.

17. Trade and FDI • US Viewpoint (1999 statistics): • Venezuela is US’s 24th largest export market. • Trade deficit with Venezuela was $5.9 billion. • Exports to Venezuela (merchandise) was $5.4 billion. • US imported $11.3 billion • Foreign Direct Investment (FDI): • $5.7 billion from U.S. in 1998. • Investments were predominantly in manufacturing, petroleum, and wholesale sectors.

18. Trade Alliances • Latin American Integration Association (ALADI) • Free trade agreement with Chile • Part of the “G3” (the Free Trade Agreement with Mexico) • Agreement with the Caribbean Common Market (CARICOM) • Currently negotiating: • Free trade agreement with MERCOSUR

19. Investor Benefits • Low tariffs and competitive tax rates. • New legislation designed to draw in foreign investment. • No capital repatriation limitation. • No profit transfer limitation. • No prior authorization requirement for investment.

20. Currency Information • Early 2002 – exchange rate system changed from pegged to free-floating. • Caused the Bolivar to depreciate. • Since then, the Planning and Development Department have pegged the Bolivar to the US Dollar. • Pegged at Bs. 1600.00 – 1596.00 • Also under investigation, a crawling peg system, which would modify the exchange rate weekly.

21. Commercial History • Venezuela has attracted the highest per capita U.S. investment in South America. • Its markets have absorbed up to $1 billion in U.S. exports quarterly. • In the 80’s, Venezuela was one of the “hottest” emerging markets. • Early 90’s, investor confidence plummeted because of two coup attempts on President Perez.

22. Commercial History Continued • Early 1994 – a banking crisis led to capital flight, currency erosion, and worsened the fiscal crisis. • Emergency currency and price controls were enacted. • Recovery was dependent on: • Revision of labor benefits. • Elimination of subsidies. • Government withdrawal from industry. • Eventually several hotels, banks, and some shares of the telephone company were sold. • Mid-1995 Landmark decision opened oil sector to foreign investment. • Eight international groups were selected to explore new oil fields. • Expectation was that it would increase U.S. oil equipment imports by 15% annually.

23. Commercial History Continued • 1996 – Government initiated a fiscal, monetary, and foreign exchange plan. It was intended to: • Lower inflation. • Balance the budget. • Restructure and strengthen financial system. • Establish a new social security program. • Provide resources to most vulnerable sectors. • Reform legal institutions. • In order to protect foreign investors, Venezuela is now a member of: • Overseas Private Investment Corporation (OPIC) – protects from political risk. • World Bank’s Multilateral Investment Guarantee Agreement (MIGA) – provides similar protection.

24. Financial Overview • 2000 • External debt was $34.5 billion • Economic growth of 3.2% • Current account balance was $13.365 billion • International reserves totaled $21.647 billion • Inflation 13.2% • 2001 • Economy contracted by 6.4% • Inflation 12.3% • 2002 • Bonds rose by 17.7% until dropping after the strike was initiated. • Expectation is that agencies will starting downgrading the country’s debt. Credit ratings on debt is at junk levels. • Foreign debt stock is 20% of $100 billion GDP. • International reserves $12.43 billion. • Inflation 31%

25. Education • Originated in Catholic Church in the colonial period. • Roots can be traced to France. • Reserved for the wealthy landowner class. • Concept of education for the privileged has continued into the modern period. • Education system at the university level has steered clear of technical and scientific fields. • Primary and secondary levels have “ignored the vocational needs of most of the population.” • Opened to general public after 1811 • Free education became an integral part of the political landscape.

26. Education Continued • In 1958 education began to expand both in quality and quantity: • Primary education became compulsory • Alternative methods of educating hard-to-reach groups (farming communities) were developed. • Universities were opened • Education geared primarily toward those seeking professional or academic careers. • In 1969, the government attempted to address this issue by facilitating the entry of students of various backgrounds.

27. Education Continued • Secondary schooling was not compulsory until 1980. • Existence of a social split: • Public schools are better funded than private. • Private schools more prestigious because of the traditional curriculum and the historical association. • Due to social advantages given by the association with a private school, some teachers choose to work in both. • Since 1958, international organizations have promoted natural sciences. • Development work in the U.S. has had a strong influence on the social sciences.

28. Education Continued • Population growth has affected education. • Number of universities between 1958 to 1984 tripled. • Overall number of places of higher education grew tenfold (to more than 70). • Literacy rate in Venezuela is one of the highest in Latin America (nearly 90%) among those fifteen and older. • Government strongly influences this by giving away training materials to encourage dissemination of literacy by the literate. • Current educational system requires nine years of schooling. • Six years of primary and three years of secondary.

29. Education Continued • Higher Education • Can attend two years of senior high school. • Can follow that with a variety of colleges, universities or technical schools. • Labor Force • Until the 80’s, skilled workers were a premium. • Due to economic downturn, the large number of skilled workers are no longer needed. • Technical education has become less important.

30. Education Today • Chavez administration has created the National Education Project (PEN). • Intended to fix some of the things still considered wrong with the educational system: • Failure of nearly 10% to complete primary school. • Failure of nearly 20% to complete secondary school. • Illiteracy still nearly 7% among males and 7.6% among females 15 and older. • Plan also “rails…against the evils of globalisation and privatisation” and is led by former revolutionaries. • Teacher’s groups and the church leaders claim it is a “Cuban-style indoctrination of youth.”

31. Educational Data • Annual census in all public and private educational institutions. • Investigating ways to improve data collection in order to break data down into smaller geographical units. • Evaluating causes of class repetition and causes of dropouts.

32. Summary • All available information points at a country that could go either way. • Oil resources give Venezuela both benefits and problems of an easy source of revenue. • Actions have been taken to counteract the cyclical revenue streams. • Alternatives to oil revenue carry with them their own burden. • Difficult to see past the problems of leadership to determine where fate will carry the country next.